ECONOMICS

analysis / facts / forecast

COST MODEL HIGH-END HOTELS

Recent times have not been great for hotels, but as the economy recovers there will be demand at the
luxury end of the market. Stephen Frood and Steve Lacey of Davis Langdon offer an overview

This Art Deco Avis Rent A Car garage in Mayfair is to be

converted into a 75-bedroom luxury hotel by architect
ReardonSmith. It will include a sculpture by Anthony
Gormley that doubles up as a bedroom.

03.12.2010 BUILDING MAGAZINE

 economics / cost model / 51

01 / INTRODUCTION
The UK hotel sector has experienced some recent times, with few hotel groups tourists and business travellers are back.
tough times in recent years, and continues to undertaking any form of direct work and This is leading to some optimism in the
suffer in many provincial areas. The sector becoming reliant on the development market construction market, in particular in the
tends to mirror the state of the economy – to bring forward new sites and opportunities. high-end market among some of London’s
when the economy is down, the hotel sector The ownership and management most prized assets.
suffers; when it is up, the hotel sector has a arrangements of many hotels also add a This article will focus on this particular
platform from which to build and prosper. further element of complexity to the market. area as we expect the emerging market here
Notwithstanding market conditions, the There are, however, signs of life in some will provide further confidence across the
sector in the UK has become complex in areas – most notably in London, where the rest of the hotel sector within the UK.

02 / MARKET FOCUS
It is often said that if you sit in the This year has seen a recovery in the be lucky if it sees RevPAR growth of times get hard but normally enjoy a
middle of the road you get run over! hotel market in London, while the rest even 1–2% in 2010. London is the rapid recovery in the upturn.
This saying is very applicable to of the UK is still lagging behind. engine driving UK hotels along the It is this element of the hotel market
the hotel market in recent times. In London has seen occupancy levels, road to recovery. that seems to be particularly buoyant
the past few years the market has and average room rates (ARR), The element of the London hotel at the current time and we will focus
favoured the groups and operators increase, and these factors have market that has led the way over this in this article on the high-end market
that focus on opposite ends of the fuelled a forecast increase of about period has been the high-end, or in London. We will review how these
market – the low-cost budget 9% in the overall revenue per luxury, product. In the middle part of projects might be delivered in the
operators and the high-end luxury available room (RevPAR), which is one 2010, average room rates in London’s current market, with regards to the
groups – thus making times even of the key metrics used by hotel luxury hotels actually rose by a structure and fabric of London’s
tougher for the hoteliers in the operators. This increase completely staggering 23%. Luxury hotels are property portfolio, and the legacy left
mid-range market. outstrips the rest of the UK, which will often the first to dive downward when by the recession.

03 / FUTURE PIPELINE AND ACTIVITY

The total UK pipeline of new hotel bedrooms is in the region of 25,000–28,000
(these being defined as new bedrooms at early concept stage, planning, design
or construction). Of this, about 10,000–12,000 are actually under construction
now. London will typically account for about 30% of this “under construction”
supply, and a high proportion of these new rooms are in the high-end market.
London is often viewed as being undersupplied in terms of hotel rooms – even
during this economic downturn. London’s supply of new hotel rooms for the
period between 2010 and 2013 is assessed at being about 12,000. Of this, the
high-end or luxury market is estimated to account for between 35–40%.

04 / WHAT DEFINES A HIGH-END HOTEL?

A high-end hotel is all about the level of service and guest experience, but a
standard mid-range or budget hotel is all about function.
High-end hotels are often of iconic or individual architectural design, such as
London’s Silken hotel in the Strand or the proposed Avis hotel in Balderton Street,
which features a large sculpture on its front elevation. These offer space in which
to relax and feel at home, and the interiors are often designed by specialist
designers using more expensive materials and purpose-made furnishings and
fittings. There is usually a choice of bars, lounges and coffee shops.
There can also be two or more restaurants offering different dining experiences,
extensive function and meeting rooms, and exclusive leisure facilities, such as a
spa or treatment rooms. All these facilities mean they need bigger support areas
and have a higher ratio of staff to guests. High-end hotels also have a higher
specification of mechanical and electrical services installations with more
sophisticated controls and management systems.
As such, high-end hotels are more expensive to build than their mid-range and
budget counterparts. Typical gross internal floor area requirements are: The Savoy hotel was closed for three years while more than
High-end hotels: 80 to 100m2 GIFA per bedroom £200m was lavished on it to maintain its place at the top
Mid-range hotels: 40 to 60m2 GIFA per bedroom end of the hotel market
Budget hotels: 28 to 35m2 GIFA per bedroom

BUILDING MAGAZINE 03.12.2010

 52 / economics / cost model

05 / HIGH-END HOTELS IN LONDON

If you review the global hotel statistics for
occupancy levels, average room rates and HIGH-END HOTELS BEDROOM AREA ANALYSIS
revenue achieved per available room (RevPAR)
there are five world destinations that will
feature at the top of all these three performance Country Gross hotel area Average Ratio bedrooms
per bedroom (m2) bedroom size (m2) to gross
benchmarks – Paris, New York, Dubai, Abu Dhabi
and London. It is the high-end market that fuels
USA 76 35 45%
London’s ranking and enables it to compete at UK 87 36 41%
the “top table”. South Africa 104 38 36%
The high-end market is different in London New Zealand 106 46 43%
compared with many other less established world Hong Kong 120 50 42%
cities and much of this centres around the historic Abu Dhabi 121 45 37%
and traditional nature of London’s property fabric. Thailand 140 44 31%
A high proportion of London’s classic luxury hotels Bahamas 145 50 34%
date back many years – Claridges first opened in
Malaysia 146 44 30%
China 152 60 39%
the 1850s and the Ritz in 1906. The Savoy, newly
re-opened after its extensive makeover, was
London’s first major luxury hotel when it first
opened in 1889. These iconic establishments if design comparators such as average bedroom required returns, and make schemes
have had to undergo continual upgrades, largely size and gross areas per bedroom are used. commercially and financially viable. It is unlikely
within the fabric of the original buildings. The table above illustrates how the average that budget hotels are designed for the top
Land and property prices are high in London luxury hotel bedroom in London is up to floors of landmark properties such as the
compared with the rest of the world, and there 50% smaller than similar graded hotels in London Bridge Tower, because high-end hotels
are few prime sites available for development in emerging locations such as China and other will create more value.
the key locations. This means that much of the parts of the world. There are many who believe we are about to
high-end hotel stock in the capital is contained London’s extremely high property prices see a new golden age for high-end hotels in
within existing historic buildings, whether they determine the type of hotel development that London. Some of the key issues that need to be
started life as hotels or not. Thus London often can take place. This means it is often the high- reviewed when considering the options for
compares unfavourably with other destinations end luxury market that is needed to drive the creating these facilities are considered below.

06 / THE CREATION OF HIGH-END HOTELS

As the hotel market shows signs of recovery, This has been brought about by the withdrawal of ■ If an existing hotel is to remain open and
developers and investors are looking for funding, or a dramatic reduction in property values trading during the redevelopment, discussion,
opportunities to create new hotels or reinvent owing to significantly reduced forecast revenues planning and agreement of phasing with the
existing and underperforming property assets. and occupancy rates. Both the Citibank owner/operator is vital, particularly for the
Competition is strong for prime city centre sites House/Silken hotel and Berners hotel partly installation, control and interfacing of mechanical
or properties in good locations. Occasionally completed projects in London have recently been and electrical services
specific new-build opportunities arise, such as the put on the market and generated huge interest – ■ If significant changes or upgrading of the M&E
Shangri-La hotel in the London Bridge Tower, but the reported sale prices reflecting a premium for installations are necessary, the hotel may need
these are few and far between and generally form the “trophy” location of properties over and above to be shut down for a short period while final
part of larger, slower-burn, mixed-use schemes. the calculated value. switch-overs are completed and new systems are
Higher property values generated by the recently However, having targeted a property to buy, commissioned and tested. This must be recognised
reinvigorated commercial office and high-end whether it be the refurbishment of an existing and taken into account from the outset
residential market on new sites also mean that hotel, conversion from another use, or acquiring a ■ Phasing schemes must incorporate good
hotel developers have been steered towards partly built hotel project, there are significant quality temporary partitions in public-facing areas
existing hotel properties and other, perhaps older, potential risks. These include high construction and physical buffer zones (for example, an
office premises that are suitable for refurbishment costs and programme implications that must be intermediate floor or a block of bedrooms)
or conversion. considered in the overall financial feasibility. between the working areas and rooms occupied
Creating a hotel within an existing building has The sort of issues encountered when refurbishing by paying guests, to reduce noise, dust, vibration
the theoretical benefit that much of the existing existing hotels, and undertaking conversions from and visual disruption and to maintain fire zones
structure and fabric can be reused. In practice other uses, include: and escape routes
the need for difficult and piecemeal repairs, ■ There is often pressure to get started, in the ■ There can be conflict between developers/hotel
strengthening, upgrading and alterations to the usually mistaken belief that a quick start on site owners and the local hotel management team
building layouts to make a 21st century hotel fit will result in an early completion. There are no when aiming to extend or upgrade a property to
into an older building means that the cost of substitutes for surveys, investigation, planning, increase long-term profitability. The local team are
conversion can be as much as, and sometimes designing and then letting construction often judged by the short-term profitability of their
more than, building a new structure. contracts on the basis of good information. hotels and can be resistant to losing revenue while
A by-product of three years of downturn in the The cost of delays and downtime while design construction work is carried out
UK economy has been the halting and subsequent detailing is resolved during the construction ■ Sometimes a lack of understanding by hotel
sale of some part-built, high-end hotel projects. process can be significant owners and operators of the scope and extent of

03.12.2010 BUILDING MAGAZINE

 economics / cost model / 53

work that will be necessary must be suffered damage or deterioration, A / HOTEL REFURBISHMENT COST MODEL
managed. A brief such as: “I want a where the original contractors do
full refurbishment of my hotel with all not accept liability or are no longer The cost model overleaf is for the creation of a new 120-bed, high-end
new services and no creaky old floors, in business hotel within the shell of an existing and old steel-framed office property in
but you must not lift the carpets”, is a ■ Securing materials specific to the London with an overall gross internal floor area of 10,000m2. The lack of
clear indication that the scope of work project held in off-site premises or suitable access into the existing building precludes the use of bathroom
needs to be established and explained subcontractors’ yards, including pods, which might otherwise be chosen for this type of conversion. The
to the client assessment of condition and hotel’s public areas will include a foyer, reception, restaurant, bar, function
■ Careful management of the client evaluation of damage, deterioration room, a small suite of meeting rooms, a gym, spa with treatment rooms and
and close liaison with the hotel and any remedial work that may be pool.
management, including daily meetings necessary Costs are based on fourth quarter 2010 and assume a competitively let,
to co-ordinate activities, is usually ■ Confirming or agreeing site lump-sum contract. Construction costs and furniture fittings and
essential to manage and keep control boundaries and party wall conditions equipment (FF&E) are included. Hotel operating supplies and equipment
of these issues. with neighbouring properties (OS&E), professional fees and VAT are excluded.
When creating high-end hotels in ■ Deciding, in collaboration with a
part-completed or distressed hotel potential new hotel operator, which
buildings the key issues include: elements of the existing construction
■ Re-employing/renegotiating can be retained and which will have 07 / THE DRIVERS FOR REFURBISHING
agreements with existing design to be demolished or altered to create
teams and contractors where possible the new hotel and comply with any
EXISTING HIGH-END HOTELS
and desirable. If not, the time and cost changes to statutory requirements
implications of producing sets of that may have come into force Some of the issues encountered when undertaking complex hotel
“interim” documents to procure since the original construction was refurbishments are covered above, but to achieve the required end result a
replacement consultants and carried out. number of issues will also need to be considered:
contractors must be considered All of the above issues have ■ The need to upgrade to retain market share
■ Securing warranties from potentially significant time, cost and ■ Maintaining accepted and expected standards of quality and service
designers, where possible, for design quality implications that must be fully ■ Meeting client and customer demands and expectations
work already completed and probably assessed and evaluated during the ■ Meeting changing requirements – for example, the need to provide leisure,
already partly implemented on site due diligence period before spa and well-being facilities
■ Securing warranties or guarantees purchasing a property, and also ■ The need to upgrade existing facilities – this might include bedroom and
from contractors and subcontractors, factored into the construction cost bathroom upgrades or public area enhancements
where possible, for construction work and programme after purchase. ■ Meeting changing regulations and statutory requirements – these might
already done Thereafter, the management of risk is include the new Part L regulations, changing standards for sustainability and
■ Rectification of known defects, essential if the project is to be energy conservation
non-compliant work or work that has delivered successfully. ■ Rebranding or a relaunch of the hotel.

Work recently restarted on the stalled Silken

hotel in central London. The Foster +
Partners-designed, 173-bedroom hotel
consists of a new building and new elements
behind the retained, listed facade

08 / SUMMARY

London is a prime world city with a

dynamic economy and an iconic
status. The demand for new
high-end hotel rooms has been
re-established and the construction
and property sector, including the
associated funding institutions,
must now turn itself to delivering
this product over the coming years.
The sector needs to work hard at
preventing inherent ownership,
management and other issues
from preventing this wave of
development from realising its
full potential.

BUILDING MAGAZINE 03.12.2010

 54 / economics / cost model

£ £/m2 % £ £/m2 %
GIFA GIFA

Building clearance 700,000 70.00 2.94% Allowance for overhauling, easing and adjusting, replacing defective
Stripping out and disposal of all loose fixtures, fittings, non-structural walls and or missing ironmongery and redecorating existing timber external doors:
partitions, redundant M&E services installations, floor, wall and ceiling finishes and 6nr @ 500
general debris to leave a clean shell: 10,000m2 @ 60 Motorised roller shutter to loading bay: item @ 10,000
Allowance for identification and removal of asbestos (to be confirmed, subject to Steel double door to electrical substation: item @ 4,000
surveys): item @ 100,000
Internal walls and partitions 1,044,800 104.48 4.38%
Substructure 499,000 49.90 2.09% New blockwork partitions to basement and ground floor areas; 140-200 thick:
Allowance for breaking out basement slab in isolated areas for repairs and remedial 1,600m2 @ 45
works to substructure: 130m2 @ 300 Acoustic metal stud partitions to bedroom areas: 7,800m2 @ 80
Allowance for underpinning and repairs to foundations: item @ 200,000 Moisture resistant partitions to bathrooms: 3,100m2 @ 68
Formation of lift pit: 5nr @ 5,000 Allowance for repairs and alterations to retained lift shafts and interior masonry
Allowance for waterproof concrete lining walls to basement and basement walls: item @ 20,000
waterproofing: 750m2 @ 280 Full-height feature glazing to spa: 100m2 @ 600
Allowance for modifications and repairs to under-slab drainage system: item @ Acoustic sliding, folding partitions to function rooms: 4nr @ 10,000
25,000 WC cubicles to public areas: 10nr @ 900
WC cubicles to back-of-house areas: 20nr @ 450
Frame and upper floors 772,000 77.20 3.24%
Allowance for strengthening and repairs to existing steel-framed structure and Internal doors 487,000 48.70 2.04%
renewing concrete encasement fire protection: 10,000m2 @ 30 Hardwood veneered doors and frames to front-of-house areas; vison panels;
Alteration; removal of floor structure and columns between ground and first floor; ironmongery: 40nr @ 1,400
installing transfer structures to open up public areas: item @ 200,000 Hardwood veneered bedroom doors and frames; card access control; ironmongery:
Formation of new “goalpost” structural opening to main entrance: 120nr @ 1,250
2nr @ 30,000 Glass sliding doors including frame and track to bathrooms:
Repairs, sundry infilling of openings in existing floors and re-screeding to accept 120nr @ 1,500
new floor finishes (assessed at 40% of total area): 4,000m2 @ 40 Painted or melanine-faced doors and hardwood frames; ironmongery; back-of-house
Form new openings through floors for service risers and other designed areas: 60nr @ 750
penetrations: 80nr @ 650 Service riser access doors; ironmongery: 80nr @ 700

Roof 298,750 29.88 1.25% Wall finishes 1,789,300 178.93 7.50%

Repairs to existing roof fabric including slatework, flashings, gutters and parapet Skimcoat plaster and paint to bedroom and corridor walls generally:
walls: 1,250m2 @ 175 3,000m2 @ 30
Roof level plant platform; acoustic louvre screens and cladding: Allowance for enhanced finishes to bedroom and bedroom corridor areas:
100m2 @ 400 1,200m2 @ 150
Allowance for roof level ancillaries; walkways, sundry plant supports and bases: Bedroom corridor protection: item @ 20,000
item @ 30,000 Stone tile finish to bathrooms 4,400m2 @ 220
Installation of fall arrest system and safety balustrades and handrails: Plaster and paint to front-of-house walls generally: 3,100m2 @ 35
item @ 10,000 Allowance for enhanced finishes to public and front-of-house areas:
800m2 @ 200
Stairs 113,000 11.30 0.47% Stone tile finish to spa and toilet areas 450m2 @ 220
New in-situ concrete main staircase; ground to first floor including handrails,floor Plaster and paint to back-of-house and corridor walls generally
and soffit finishes and nosings: item @ 35,000 4,700m2 @ 25
Repairs and upgrading to existing concrete staircase to form front-of-house stair, Whiterock cladding to kitchen areas: 420m2 @ 65
including balustrades handrails and finishes (rate per flight): 12nr @ 5,000 Ceramic tiling to back-of-house toilets and changing areas: 100m2 @ 55
Repairs and upgrading to existing concrete staircase to form back-of-house stair, Sealer to concrete or block walls in plant and workshop areas: 500m @ 7
including balustrades, handrails and finishes (rate per flight): Allowance for wall protection rails and guards: item @ 10,000
6nr @ 3,000
Floor finishes 1,087,100 108.71 4.56%
External walls, windows and doors 941,050 94.11 3.95% Guest room and corridor flooring – carpet: 4,320m2 @ 55
Allowance for general repairs and cleaning to brick and stonework facades: Guest room flooring – timber: 360m2 @ 180
3,000m2 @ 150 Guest bathroom flooring – stone tile and skirtings: 1,350m2 @ 250
Allowance for replacement of decayed stonework: item @ 100,000 Timber flooring to front-of-house areas: 300m2 @ 200
Allowance for overhauling, easing and adjusting, replacing defective or missing glass Stone floors and skirtings to front-of-house areas: 900m2 @ 250
and ironmongery and redecorating existing timber sash windows (80% assumed) Carpet flooring – front of house: 200m2 @ 65
256m @ 300
2
Ceramic tiling to front-of-house areas: 100m2 @ 60
Double-glazed timber sash windows to match historic profiles of existing (20% Vinyl flooring and skirtings – back of house: 1,200m2 @ 30
assumed): 63m2 @ 750 Carpet tile to back-of-house areas: 320m2 @ 35
Secondary glazing to windows to the front elevation: 160m @ 5002
Ceramic tiling to back-of-house areas: 100m2 @ 40
Storey height glazed screen wall to ground floor entrance with motorised entrance Allowance for floor sealer to plant and workshop areas: 400m2 @ 15
doors and side pass doors: item @ 120,000 Allowance for painted timber skirtings: 5,400m @ 15
Allowance for glazed canopy to entrance: item @ 50,000 Matwell to entrance: item @ 5,000

03.12.2010 BUILDING MAGAZINE

 economics / cost model / 55

£ £/m2 % £ £/m2 %
GIFA GIFA

Ceiling finishes 1,033,500 103.35 4.33% Allowance for external building lighting: item @ 50,000
Painted plasterboard ceilings to bedrooms, bathrooms and corridors including Standby generator for life safety and essential services: item @ 75,000
access panels and bulkheads: 4,550m2 @ 150 Allowance for earthing and bonding: 10,000m2 @ 4
Suspended plasterboard with paint finish to public areas including cornices, Allowance for incoming electrical supply including substation and transformer:
bulkheads and access panels: 2,200m2 @ 100 item @ 150,000
Extra for acoustic treatment above ceilings between rooms in public areas:
item @ 20,000 Gas installations 25,000 2.50 0.10%
Allowance for feature ceilings in front-of-house areas: item @ 50,000 Gas installation: item @ 25,000
Suspended lay-in ceiling to back-of-house areas: 1,000m2 @ 40
Hygienic ceiling tile to kitchen areas: 300m2 @ 70 Lift installations 545,000 54.50 2.29%
Public lifts: 2nr @ 95,000
Furniture and fittings 1,590,000 159.00 6.67% Service /firefighting lift: 2nr @ 120,000
Fitted stone vanity units, mirrors and shower screens to bedrooms Luggage lift: 1nr @ 90,000
120nr @ 7,000 Platform lift: 1nr @ 25,000
Allowance for fitted furniture and fittings to public areas including foyer, restaurant,
bar, lounge, meeting and function rooms: item @ 750,000. (Loose furniture and Protective installations 421,000 42.10 1.77%
fittings to front of house and guestrooms included in FF&E budget) Lightning protection: item @ 35,000
Wet riser: 2nr @ 8,000
Sanitary fittings 435,000 43.50 1.82% Gas fire suppression system to IT room: item @ 20,000
Sanitaryware and fittings to guest bathrooms: 120nr @ 3,000 Sprinkler protection to whole hotel: 10,000m2 @ 35
Sanitaryware and fittings to front of house: item @ 40,000
Sanitaryware and fittings to back of house: item @ 35,000 Communication installations 828,000 82.80 3.47%
Fire alarm and smoke detection system, zoned: 10,000m2 @ 14
Services equipment 700,000 70.00 2.94% Disabled WC alarm system: 10nr @ 2,000
Installation of kitchen and servery equipment including bar and refrigeration fittings, Sound and voice alarm systems: 10,000m @ 18
complete: item @ 700,000 Allowance for cable containment: 10,000m2 @ 8
Telephone and data cabling: 10,000m2 @ 10
Disposal installations 370,000 37.00 1.55% Audio and TV distribution network: 10,000m2 @ 14
Waste, soil and vent pipework to the hotel generally: 10,000m @ 35
2
Security, CCTV and access control systems: 10,000m2 @ 15
Rainwater installation: item @ 20,000 Bedroom door access cabling: 120nr @ 150

Hot and cold water installations 650,000 65.00 2.73% Specialist installations 590,000 59.00 2.47%
Hot and cold water installation; incoming main, storage, distribution; valves and Building management system and controls: 10,000m2 @ 30
accessories in front and back of house; 10,000m2 @ 65 Steam generation system to spa: item @ 30,000
Allowance for pool and associated plant: item @ 200,000
Space heating air treatment Allowance for sauna and plunge pools: item @ 60,000
and ventilation 2,623,000 262.30 11.00%
Gas-fired boiler installations including flues, valves and header pipework: Builder's work in connection 250,000 25.00 1.05%
item @ 300,000 Forming holes and chases: item @ 250,000
CHP plant including fuel tanks, pumps and pipework: item @ 150,000
Air-conditioning to bedrooms and public areas; main plant; ductwork, pipework, Preliminaries 4,186,134 418.61 17.55%
insulation, terminal units, grilles and diffusers 10,000m2 @ 130 Management costs, site establishment and site supervision. Contractor’s
Heated towel rails and electric underfloor heating to bathrooms: 120nr @ 900 preliminaries, overheads and profit @ 16%: item @ 3,146,134
Supplementary cooling to lifts: 5nr @ 5,000 Testing and commissioning of building services installations: item @ 40,000
Extract ventilation to guest rooms; front and back-of-house areas; main plant; Design reserve at 5%: item @ 1,000,000
ductwork, pipework, insulation: 10,000m2 @ 70
Staircase pressurisation: item @ 40,000 Total construction cost
Building only 23,849,474 2,384.95 100%
Electrical installation 1,870,840 187.08 7.84% (Square metre rate based on GIFA)
Mains and sub-mains distribution: 10,000m2 @ 20
Lighting installation to front and back of house; luminaires; emergency lighting: FF&E Items 2,552,500 255.25
3,970m2 @ 70 Bedroom and front-of-house items: 6,210 m2 @ 350
Small power to front and back of house: 3,970m2 @ 22 Back-of-house items: 3,790 m2 @ 100
Allowance for additional feature lighting to public areas: item @ 250,000 Operating supplies and equipment (OS&E) excluded
Lighting installation to guest rooms and corridors luminaires; emergency lighting:
120nr @ 4,000 Total cost 26,401,974 2,640.20
Small power to guestrooms 6,030m2 @ 20 Cost per bedroom £220,016
Fix only allowance for connecting lighting and appliances included in FF&E: Gross internal area per bedroom 83m2
200nr @ 500
Electrical supplies to mechanical plant, including guest room ventilation units:
item @ 40,000

BUILDING MAGAZINE 03.12.2010